Employers, workers feel the pinch as premiums rise

With a recession taking a bite out of the small check cashing shop she runs, and money becoming scarce, Zoraida Reyes said her choice was clear -- she could keep her insurance or stay in business. "I chose to stay in business," she said.

Reyes owns Check Cashing &amp; More on East Main Street in Bridgeport. She's paying two mortgages -- one for her home, and one for her business. Add in regular living expenses and a decrease in business, Reyes said it has become hard to make ends meet. Thus, she's had to make sacrifices, including insurance, which she dumped five months ago.

This choice between health insurance and other bills was once largely limited to young, entry level workers or the poor, but today it confronts middle class workers and business owners whose personal financial burdens are not getting any easier. The increase in health care costs have continued to outstrip the increase in income. Looking into 2010, the expectation is that health insurance costs will rise more than 5 percent, which is prompting dire warnings of lagging job growth and further economic difficulty from some economists.

As a business owner, Reyes had to purchase her own health insurance, and was constantly shopping around for better deals. Until stopping coverage, she was insured through Blue Cross and Blue Shield, and was paying roughly $600 a month. Most of her employees are students who work part-time, and Reyes doesn't offer them insurance. Paying her own costs was challenging enough -- especially considering that Reyes almost never goes to doctor, and scarcely used the insurance she was handing out sizable chunks of change for. "I just had it in case something happened to me," she said.

After a while, it no longer seemed worthwhile to keep her insurance, so she dropped it.

Reyes isn't alone, as many people across the country have been enveloped by a rising tide of premium increases.

Since 1999, health insurance premiums have gone up a total of 131 percent while workers' wages have increased by 38 percent during the same period, according to a study by The Kaiser Family Foundation, a health-focused non-profit based in Menlo Park, Calif. The study also found that the rate of overall inflation for the same period was just 28 percent.

This year was also rough. In 2009, the full health insurance premiums, that paid by both employers and employee, averaged $4,824 annually for single coverage and $13,375 for family coverage, the study said. One of the study's authors, Bianca DiJulio, said premium increases have long outpaced other increases for a variety of reasons, including the continued evolution of medical care. As new medical technologies and treatments emerge, care becomes more and more expensive. "It all sort of adds up," said DiJulio, a senior policy analyst at Kaiser.

Heading into the enrollment season, when employers unveil new insurance options and costs to employees, the news isn't good.

According to the Stamford-based human resources consulting firm Towers Perrin, health insurance premiums nationwide will likely increase by an average of 6.5 to 7.5 percent in 2010. That number is based on early results from the firm's annual survey of a random sampling of Fortune 1000 companies. About 300 companies nationwide have been surveyed, and roughly 200 more will be consulted by the time the firm's research is done.

Already, the research shows that premiums in 2010 will be, on average, $427 a month (about $5,000 a year) for single employees and $1,257 a month ( about $15,000 annually) for family coverage. Employers historically bear about 80 percent of the costs for health insurance, said Towers Perrin principal Ron Fontanetta, and that appears to be the case in the coming year as well. He said single employees should expect to pay $80 to $100 a month for health insurance, and those with families will pay $300 to $350 a month.

Fontanetta said an increase in premium costs of 7 percent or so is typical. But this year, he said, the spike in costs could be especially painful for employees, as the recession is preventing many companies from doling out merit-based pay increases. If raises are given, they're likely to be smaller than normal.